Guest perspective by Ralph Nader
Within the burgeoning tonnage of business press—print and electronic—precious little has been written about the near zero interest paid on savings and money market accounts that total trillions of dollars.
The Federal Reserve periodically and proudly announces that it is determined to keep interest rates very low to help lending and the economic recovery.
As Washington’s most powerful regulator of money and interest rates, the Fed has the last word. The Fed’s budget comes from bank fees the Fed is really there to serve its banking patrons. Cheap money for the banks and steep interest rates for their borrowers means big profits for the banks.
Finally, a business columnist—a superior one at that—Floyd Norris of The New York Times has spoken up. He writes: “Aren’t low short-term interest rates wonderful? If you are a bank, the answer is yes….if you are a saver, however, your view might be different.”
Yes, savers of America, your prudence and loyalty to your friendly bank is being “rewarded” with interest rates that range from one-tenth to five-tenths of one percent! That’s less than half a cent per year on every $100 you deposit. I’ll leave it to you to figure what the banks charge to lend you money.
Mr. Norris has a way of driving his points home, to wit: “Chase, the retail operation of JPMorgan Chase, and Wells Fargo were offering 0.05 percent…At that rate, if you wanted to put away enough to produce a retirement income of $50,000 a year, without touching the principal, you would need $100 million on deposit.”
Keep in mind, these and other large banks were bailed out for their reckless, avaricious behavior with your tax dollars. Some gratitude! Especially since the banks are now reporting roaring profits quarter after quarter on the backs of taxpayers and savers.
After putting “a large part of the blame for the mess…on bankers, who made the bad loans and invented all those strange securities that blew up,” Mr. Norris made his central point:
“Meanwhile, with little public attention, those consumers who acted responsibly, the ones who refrained from buying houses they could not afford and did not take out home equity loans to finance consumption, but instead saved their money for a rainy day, must feel like losers…..”
“And if they kept the money in cash, seeking to avoid all risk, this is their reward: 0.05 percent. Now does that sound fair? Of course not.”
This injustice is being felt every week day at the corner of Main and Elm Streets in Everytown U.S.A. Retirees and other Americans of very modest means, who once used interest income to pay some of their bills, now see their savings accounts getting little more than protection from robberies.
The finance bosses and their Washington servants have rigged the system against consumers. The bosses have the lobbyists and the campaign contributions. The small savers have neither.
The savers, however, vastly outnumber their gougers in votes, and their savings add up to quite a bundle of potential financial might. Current Federal Reserve figures put savings accounts at a total of $911 billion, not to mention money market deposit accounts totaling just under $3 trillion.
But without organization, the numbers and dollars of the savers don’t mean political power. How then to organize?
How about a little reciprocity for all the public monies and guarantees we have given to the banking industry? The financial reform legislation is about to reach the Senate floor. An amendment is ready to require banks to provide inserts or online notification inviting savers to band together and join a non-profit Financial Consumers’ Association (FCA) which these savers would fund through modest annual dues. Getting such an insert in your monthly bank statement reaches you when you are most attentive to such matters.
Based on returns with similar voluntary groups of residential utility consumers, several million savers would sign up to have full-time advocates—lawyers, economists, organizers and publicists—representing them before Congress, the regulatory agencies and the courts. Other benefits would include free advice and information to avert traps and reap better returns on savings.
Savers must have a seat at the table with skilled advocates to counteract the always present bankers.
Senator Chuck Schumer (Dem. NY) proposed this FCA back in 1985 during the savings and loan collapse. He supports it now, along, I hope, with Banking Committee Chairman Senator Chris Dodd.
But there are many amendments in the Senate debate starting next week. So let your Senator know you are supporting FCA and then let Senators Schumer and Dodd know that you want them to do likewise—now, without delay. (The Congressional telephone is 202-224-3121)
In the meantime, elevate your insistence that your local bank give more to local charities. It is the least the banks can do to compensate for paying you such low interest rates with cheap money.